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by Dian Hymer, Inman News Remodeling Magazine’s 2008-2009 Cost vs. Value Report, produced each year in conjunction with Realtor Magazine, contains good news about the value of remodeling projects.

Home repairsThe recent Cost vs. Value Report showed that renovations on a nationwide basis held their value better than home prices did in 2008. According to the National Association of Realtors (NAR), home prices declined 7 percent in 2008, while the value of homeowners’ investments in remodeling dropped only 2.8 percent in 2008.

During slow real estate cycles, many would-be sellers postpone their move and remodel instead. This makes sense as long as the projects are selected carefully for maximum return on the investment. It’s important to avoid renovations that would overimprove the property for the neighborhood.

One benefit of remodeling sooner rather than just before selling is that the homeowner is able to enjoy the improvements before moving on. All too often, sellers wait until right before they put their home on the market to enhance its appeal.

HOUSE HUNTING TIP: Remodeling, if done smartly, can result in a quicker sale and less negotiation with buyers over perceived shortcomings. Painting the house and updating the kitchen, baths, lighting fixtures and floor coverings are examples of improvements that can improve the sale price.

In today’s slow economy, there are more contractors looking for work in some areas. And, in some cases, their prices have come down. This positively impacts the return on investment when the home is sold.

Recently, an Oakland, Calif., homeowner received a bid of under $20,000 for a midrange kitchen remodel. Four years ago, he received a $45,000 bid for the same work, but decided against going ahead with the project because of the cost. Now that he’s ready to sell, he’s planning to do the midrange kitchen remodel to enhance the salability of his home.

The amount of return from a remodel investment that is recouped when the property is sold varies significantly from one place to the next and from project to project. For example, nationally, 70.7 percent of the cost of a major kitchen remodel was recouped at sale.

In the Pacific region (Alaska, California, Hawaii, Oregon and Washington), a major kitchen remodel returned 95.5 percent. In San Francisco, a major kitchen remodel returned 131.5 percent of the investment at sale. Despite higher labor and material costs, The Pacific Coast average cost recouped at sale was 14.8 percent higher than in the rest of the country.

Smaller cities such as Jackson, Miss., and Billings, Mont., had high rates of recovery due to lower labor and material costs.

Nationally, exterior improvements generated the biggest payback on average. A midrange deck returned 80.8 percent. Upscale fiber cement siding returned 86.7 percent. A midrange minor kitchen remodel returned 79.5 percent. And upscale vinyl windows returned 79.2 percent. These projects increase curb appeal — an important selling feature for most homebuyers.

The data used to generate the Cost vs. Value Report was obtained from surveys sent to more than 150,000 appraisers, real estate agents and brokers in July and August 2008. The cost data was obtained from HomeTech Information Systems, a remodeling estimating software company. The confidence level of the results is 99 percent, plus or minus 2 percent, according to NAR.

Homeowners who are concerned about the resale value of their home should first consult contractors to obtain estimates. Then consult with an experienced local real estate agent for input on the estimated cost recovery of the anticipated improvements before moving forward.

THE CLOSING: Sellers often spend too much on improvements, or make improvements that don’t add value at sale. Some improvements can actually decrease value if they are so specialized that they don’t have broad-based appeal.

Dian Hymer is a nationally syndicated real estate columnist and author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books. What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Copyright 2009 Dian Hymer

See Dian Hymer’s feature Curb Appeal Tips That Pay Off.

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  • I FOUND THE ARTICLE INTERESTING. MY FAMILY AND I DO ALL OF OUR UPGRADING TO OUR PROPERTIES. WE HAVE A LARGE VACANCY FACTOR IN OUR OHIO VALLEY AREA AT THIS TIME.
    IT WOULD BE A GOOD IDEA IF ALL THE LANDLORDS WOULD GET TOGETHER AND APPROACH OUR BANKS WHERE WE HAVE REALESTATE LOANS,AND ASK FOR OUR MONTHLY PAYMENTS TO [BE ON THE INTEREST ONLY] OF OUR LOANS UNTIL THE MARKET GETS STRONGER.THE GOOD REALESTATE INVESTORS HAVE NO VOICE TO HELP US. THOSE OF US THAT HAVE PLAYED BY ALL THE RULES ARE NEVER HELPED. BANKS LOVED US WHEN THE MARKET WAS BOOMING. I HAVE TALKED TO SEVERAL OTHER REALESTATE INVESTORS, AND WHEN I MENTION THIS IDEA TO THEM THEY ACT AS IF THEY ARE GOING TO THE PRINCIPALS OFFICE TO BE SENT HOME. IS THE IDEA THAT BAD?

  • I FOUND THE ARTICLE INTERESTING. MY FAMILY AND I DO ALL OF OUR UPGRADING TO OUR PROPERTIES. WE HAVE A LARGE VACANCY FACTOR IN OUR OHIO VALLEY AREA AT THIS TIME.
    IT WOULD BE A GOOD IDEA IF ALL THE LANDLORDS WOULD GET TOGETHER AND APPROACH OUR BANKS WHERE WE HAVE REALESTATE LOANS,AND ASK FOR OUR MONTHLY PAYMENTS TO [BE ON THE INTEREST ONLY] OF OUR LOANS UNTIL THE MARKET GETS STRONGER.THE GOOD REALESTATE INVESTORS HAVE NO VOICE TO HELP US. THOSE OF US THAT HAVE PLAYED BY ALL THE RULES ARE NEVER HELPED. BANKS LOVED US WHEN THE MARKET WAS BOOMING. I HAVE TALKED TO SEVERAL OTHER REALESTATE INVESTORS, AND WHEN I MENTION THIS IDEA TO THEM THEY ACT AS IF THEY ARE GOING TO THE PRINCIPALS OFFICE TO BE SENT HOME. IS THE IDEA THAT BAD?

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